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Compulsory licensing is one of those euphemisms that hide a whole raft of issues. By definition – it is “authorisation to a government or company to make and sell a pharmaceutical drug without the permission of the patent holder”, which makes the intent clear.

In its most obvious form, compulsory licensing is what occurs when a government allows a third party to produce a patented product or process without the consent of the patent owner. At first glance, it would seem to be nothing more than infringement of intellectual property rights. After all, one cannot imagine companies agreeing to a legal compulsory licensing system for music, movies, or even software. Of course, that’s the point, the breach of the patent becomes legal when a government says it is. So, if it seems unethical and immoral from the point of view of the companies, is there any justification, or compulsory licensing simply piracy at the national level?

Compulsory licensing seems to be an implicit flexibility in patent protection included in the WTO agreement on intellectual property, the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement, and applies to public health only. But, we’re not talking about movies, music, and software. This flexibility is about allowing the developing world to develop healthily and the sidestepping of patents on pharmaceutical and other medical products.

Fundamentally, compulsory licensing overrides the patent protection a pharmaceutical company may have for its product and legalises the manufacture of generics for the benefit of that nation’s poor and sick. Usually, it is reserved for drugs that are simply too expensive for developing world countries to afford. Despite the cost, these are essential for treating the very diseases, such as malaria and HIV/AIDS, with which the poorer nations are worst afflicted.

Indian lawyers, Sagarika Chakraborty and Angira Singhvi, writing in a forthcoming issue of the International Journal of Intellectual Property Management, suggest that compulsory licensing has not yet been used extensively in the developing world as an instrument of public policy and in some instances has simply been a tool of economic abuse. However, used properly compulsory licensing could promote widespread health improvements, they say, and might allow the term “developing” to become “developed” in many parts of the world.

They argue that developing nations are not the primary markets for drug companies. Moreover, they currently represent a very small proportion of sales. Even in the absence of compulsory licensing that TRIPS should have little detrimental impact on profits. Of course, India has a burgeoning middle class and as it develops could begin to represent a vast untapped market for the pharmaceutical industry. If the pharmaceutical industry were to ignore compulsory licensing during this period of development it could find its potential markets compromised as wealth accrues in such countries. Conversely, working with developing nations now could accumulate goodwill for the future.

But, given that drug companies have essentially neglected so-called third-world diseases for decades, seeing no billion-dollar blockbusters in regions such as Africa, South America, and Asia, they have little ammunition to now enforce their patents in those places. It is likely that as that middle class emerges, they will have grown entirely accustomed to pharmaceutical generics that they may never accede to purchasing the expensive patent-protected versions.

Some companies are facing the issue of compulsory licensing head on. They are already taking tiny steps to circumvent TRIPS by offering discounts to developing nations on select drugs and essentially becoming generics manufacturers of their own products. In 2000 Pfizer offered fluconazole to South Africa for free to treat opportunistic infection in AIDS sufferers. This kind of action could counteract the putative market loss as nations develop, providing much needed publicity and branding.

Cynically speaking, these steps have perhaps been spurred on by the philanthropic actions of the likes of the The Bill & Melinda Gates Foundation and their promise to tackle malaria. They may have been triggered by the work of prescription drug retrieval charities like Intercare, and others which collects returned prescription medicines and supplies them free of charge to a network of health centres in Africa. Alternatively, various national changes, such as Brazil’s AIDS control program that breaks the patent on Merck’s AIDS drug Efavirenz, the Doha-enforcing amendments to Chinese Patent Law in December 2008, Thailand’s Foreign Business Act and international condemnation of the industry position may also have acted as a spur to push the compulsory licensing debate forward.

“A lot of drug companies are getting increasingly nervous about the ability of developing countries to override their patent rights in the interest of public health,” says SpicyIP. “The biggest worry for drug companies, however, is that countries will abuse compulsory licenses, employing them in the absence of any public health crisis, simply because the government wants to pay less for drugs.” Similar concerns are reported by Intellectual Property Watch.

TRIPS and the WTO’s DOHA Declaration, essentially allows developing and underdeveloped countries to sidestep patent law and “use without authorisation of the right holder”. Unfortunately, the Declaration does not clarify key terms, such as “public health”, say Chakraborty and Singhvi, which means the field remains open to interpretation that might the pharmaceutical industry and developed countries rather than those it aims to help.

Patent and IP pundit Tom Giovanetti recently highlight the issue of compulsory licensing and how it might affect the American motor industry and the development of green technologies. “Those who argue against patents inevitably are disingenuous about the innovation of the patent system itself,” he says.

“The true genius of the patent system is that, in exchange for your temporary market power, you must disclose your invention. In other words, a patent does not lock knowledge away. In fact, patents are the ultimate tools for technology transfer. Everyone gains immediate access to the knowledge–they just don’t get to copy the invention. They can build on it, they can improve it, but they cannot immediately copy it,” adds Giovanetti. That perhaps simply adds another brace to the argument put forward by Chakraborty and Singhvi for pharmaceuticals in the developing world.

Drug firms have argued that giving away free drugs is detrimental to R&D. R&D costs hundreds of millions of dollars, takes ten to fifteen years to bring a product to market, and patent protection is therefore vital for company survival.

This is true, say Chakraborty and Singhvi, but not in the developing world, where R&D for “third-world” diseases is minimal. “We argue that compulsory licensing is a fundamental tool that developing countries may use in certain conditions to ensure that poor people have access to necessary medicines,” the say.